Financial management

Financial management

Any enterprising library facility is likely to have a complex range of ‘payments in’ and ‘payments out’ to keep track of. Many bills will be quarterly or monthly and some larger income and expenditure will be annual. Good financial controls will be needed to ensure adequate cash flow is available to cover bills, to ensure that money is transferred securely with appropriate records kept and that there is sufficient money available to cover incidental or unexpected costs. Ideally your buildings’ financial systems should be integrated with those of your organisation but it is essential that you can see which costs relate to the buildings and which relate to other areas of the organisation so that you can manage your buildings costs effectively.

Budgeting is essential to control the finances associated with running a building. Variance reports need to be reviewed in detail and if there are large variances you should question why these have occurred. Was it a one off or should the budgets be re-looked at and updated?

For larger libraries you will also need to consider carefully how you construct your budgets and how you allocate costs as within your library you may have a range of users and occupants with different financial responsibilities for different areas. A common way to unpick individual costs is to think of all the land owned in association with the library as the ‘Site’ (e.g. the car park, grass verge, and buildings). On the ‘Site’ there may be one or a number of ‘Buildings’ (e.g. the main library, a port-a-cabin classroom in the car-park, and an old boiler-house). Within each building there may then be a number of ‘Premises’ (e.g. the library space, a café, and an office which is let out to a community group).  The allocation of cost begins to seem a little more complicated when you consider that all the Premises in a Building share some space e.g. hallways and so should pay a proportion of the costs to maintain them. They should also probably contribute to the costs of maintaining shared space on the Site such as the car park.

Knowing the actual costs of running a site and how to allocate those costs is especially important if you have commercial or quasi-commercial office premises for rent in the same Building as your library premises. In such a case you need to carefully consider and calculate costs and rents so as to ensure that the library isn’t actually subsidizing the ‘incoming earning’ space. The running costs of a site are often referred to as Service Charges and the process of estimating and allocating costs and fees forms the main part of the annual service charge budgeting process.

You need to be clear which costs are associated with the site, buildings and premises, as apposed to those associated with service delivery and tenants’ activities. This clarity of information enables you to make decisions about how you manage and maintain the fabric of the building and its facilities to make the most effective vessel for your services and building users.

The construction stage of any development process presents the biggest financial risk to a project. Make sure you keep track of any changes to the design and their cost implications. Once construction has been completed you should reconcile invoices with the original contract. Contractors may attempt to add provisions to the contact; you need to check that these are valid to ensure overpayments are not made. You must set aside money at the end of the construction phase for subsequent payments to contractors over the next twelve months. This retention money is paid once the building has been in operation for a set period and any defects have been resolved. Do not allow this to be swallowed up by general expenditure.

Construction projects require detailed understanding of VAT liabilities. This is a complex area of taxation law and it is advisable to seek professional advice. This will incur a cost but it negates the risk of being hit by a large and unexpected tax bill.